Copyright 2001
David Walter Brown
Why Governments Fail to Capture Economic Rent:
The Unofficial Appropriation of Rain Forest Rent by Rulers
In Insular Southeast Asia Between 1970 and 1999
David Walter Brown
A dissertation submitted in partial fulfillment of the requirements for the degree of
Doctor of Philosophy
University of Washington
2001
Program Authorized to Offer Degree: Department of Political Science
University of Washington
Graduate School
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David Walter Brown
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and that any and all revisions required by the final
examining committee have been made.
Chair of Supervisory Committee:
____________________________________________________
Daniel Lev
Reading Committee
_____________________________________________________
Joel Migdal
_____________________________________________________
James Caporaso
_____________________________________________________
Gerard Schreuder
Date:
_________________________
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Abstract
Why Governments Fail to Capture Economic Rent:
The Unofficial Appropriation of Rain Forest Rent by Rulers
In Insular Southeast Asia Between 1970 and 1999
David Walter Brown
Chairperson of Supervisory Committee: Dr. Daniel S. Lev
Department of Political Science
Natural resources are easy for governments to tax, as they embody high amounts of
windfall profit or "economic rent." According to resource economics, it is optimal for
governments to collect as revenues nearly all of the economic rent earned by resource
extractors. For example, the Indonesian and Malaysian governments collect revenues
from oil producers equal to 80 to 85 percent of economic rent.
The actual level at which these same governments collect economic rent from rain
forest timber is generally quite small: 26 percent in Indonesia and 18 percent in the East
Malaysian state of Sarawak. In contrast, experts claim that the capture of rent is quite
high in the East Malaysian state of Sabah, where 88 percent of timber rent is collected.
The dissertation seeks to explain this seemingly wide variation.
The study argues that government agencies fail to collect timber rent at optimum
levels because they are prevented from doing so by rulers who use their positions to build
and maintain hidden ties to the timber industry through which they appropriate vast
amounts of timber rent. Conversely, the study argues that governments that succeed in
collecting timber revenue are able to do so because they possess the institutional capacity
to prevent rulers from absconding with timber rent.
Proving whether or not rulers are appropriating timber rent is accomplished through
archival research, primary documents, and five years of field work to identify all forest
areas licensed to the largest timber conglomerates in Indonesia, Sarawak and Sabah. This
research is corroborated and supplemented through structured interviews to find out
whether rulers, their families, proxies, business partners, and political supporters and
financiers run or own these timber concessions.
The study concludes that in Indonesia, Sarawak, and surprisingly, Sabah as well, each
head of state has multiple ties to timber concessions. Moreover, rates of timber rent capture
in Sabah are not nearly as high as believed by experts. This dissertation estimates that the
three governments failed to collect 40 billion dollars in timber revenues over thirty years.